Finding hidden income

Finding hidden income in Michigan divorce and support cases. (c) 2015 

FiImage result for free images cash under bednding hidden would be easy if everyone put cash under the mattress.  The fact is, finding hidden income is sometimes hard.  Discovering hidden income can impact child support, spousal support (alimony) and property division.  Here are some simple techniques to discovering hidden income:

Look at his/her expenses

If a party is reporting $30,000.00 a year in income and belongs to a fancy country club, drives an expensive car and lives a lifestyle in excess of his/her income with little debt you know something is wrong.  Investigating a parties expenses can reveal hidden income which can be imputed in a divorce or custody case.

Look at the tax schedules

It is probably not a surprise to many that the income reported on tax returns may be understated.  A close look at a parties tax return may provide clues of hidden income.

  • Schedule C:  The Schedule C in a tax return reports the profit and loss from a business.  Hiding income as a business expense is another trick used to under report income.  A review of underlying financial records such as the general ledger, cash receipts journal and cash disbursement journals can reveal hidden income.  Business expenses can also reveal hidden income in the schedule C.  If the business pays for a car, home expenses and the use of a business credit card, these business expenses are in fact, hidden income.
  • Schedule D:  The Schedule D in a tax return reports capital gains and losses.  A tax loss carryforward can be used to offset future income.
  • Schedule E:  The Schedule E of a tax return reports Supplemental Income and Loss.  Examination of Schedule E can reveal hidden income.  Typical hidden income found in Schedule E are rental properties, royalties and trust payments.
  • Schedule K-1:  The tax Schedule K-1 reports any payments made to an owner of a partnership, an LLC or S Corporation.  Hidden income can be revealed by looking at the K-1 Schedule.  It is not uncommon to find a business owned by a spouse that you never even knew about.

Cash business

Hidden income can be found by looking at income never reported on a tax return.  Income earned from a cash business or even babysitting or house-cleaning should be considered in a divorce, custody or support case.  Finding the cash is not always easy.  However, a safe full of cash, or always having cash on hand often indicate a cash business.  After all, if the cash did not come from the bank, where did it come from?

In some complicated and high asset cases, lawyers may hire a forensic accountant to evaluate hidden income.  Even without a forensic accountant, close look at a parties actual income and expenses can reveal hidden income. 

When a party divorces and money is at issues, every dollar counts.

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By:  Daniel Findling

 

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